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Answer: Zero, as no payment is exchanged between the long and short positions at initiation.
At the initiation of a forward contract, neither the long nor the short position makes any payment to the other, resulting in a contract value of zero. This is because the forward price is set such that the present value of the contract is zero at inception. Options B and C incorrectly describe the value of the contract at expiration, not initiation. The value at expiration is determined by the spot price minus the forward price (for the long position).
Author: LeetQuiz Editorial Team
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The value of a forward contract at initiation is most likely:
A
Zero, as no payment is exchanged between the long and short positions at initiation.
B
The difference between the spot price and the forward price.
C
The difference between the forward price and the spot price.
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